Gold Begins Week By Rallying A Little

Trading for the week started yesterday evening with a rally that took the price up to the $1,125 level in short order. It peaked at just above $1,130 just before 8 PM ET. News fom Japan had an influence: the Bank of Japan plans to continue monetizing Japanese government debt, and will even accelerate if deflation continues.

That peak didn't last, though. Gold faded quickly down to the $1,125 level again and stayed there for the rest of the night. By the time night turned into morning, the price was slightly below $1,125. It hung there until 2 AM ET, at which time it dipped. A recovery to $1,129 didn't last as gold continued to fall; the early morning low was reached a little before 6 AM at $1,115.90. A quick rally erased most of the loss; the metal got above $1,120 by 6 and stayed there until just after 7:30. As of 7:42 AM ET, spot gold was at $1,119.80 for a gain of $2.70 on the day. The Kitco Gold Index allocated the gain to -$0.60 due to U.S. dollar strength and +$3.30 due to predominant buying.

The U.S. Dollar Index also started the evening with a rally, which didn't last long. The Index topped at 82.625 between 6:10 and 6:15 PM, and then slid downwards to below 80.4 by 10:30. It began re-rallying, slowly, until just before 2 AM when it entered a choppy phase. That re-rally was buried as the Index entered into a wide trading range, bordered by 80.6 on the upside and 80.45 on the downside. As of 7:53 AM ET, the Index was at 80.56.

This report from Fin24.com attributes last night's gold rally to a rise in the euro, prompted by hopes that Greece will get some sort of bailout package. A quoted dealer says that a sustainable floor has been established at $1,100:

"It looks like there's quite a solid support at $1 100 for the time being. We are waiting for Bernanke's speech this week and some data, and will then see what happens," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

"The dollar continues to weaken and we don't see much selling around," said Leung, referring to selling from the physical sector which normally happens when gold hits new highs.

Another dealer noted fund buying as adding support to the price.

This Reuters report, as webbed by the Montreal Gazette, attributes last evening's rise to the falling greenback as well as to a possible bailout of Greece. Fears of an imminent Fed Funds rate hike have faded. A gold analyst also brings up the $1,100 level:

“There’s a bit of risk coming back into the market, we shook off the change in U.S. discount rates and the nervousness disappeared fairly quickly after that. $1,100 is a level being looked at, if we can hold it there could be further gains to be made as news from Greece unfolds,” said Ole Hanson, analyst at Saxo Bank.

U.S. economic data this week could change the picture, however. No surprises are expected in Fed chair Bernanke's testimony to Congress.

A Wall Street Journal write-up attributes last evening's rise to "[l]ight physical buying in Asia" and quotes a trader that also mentions $1,100:

Losses [due to weakening of the Euro] may be limited, though, by the strong bargain-hunting that helped keep gold above $1,100 on repeated occasions last week, analysts said. "Gold is well supported at $1,100 and equally it's struggling [to] get above the $1,125 range," said a senior gold trader in London.

Of interest is the fact that more and more currency analysts are becoming U.S. dollar bulls. The above article mentions $1.30 per euro. This Zero Hedge post mentions Morgan Stanley's target of $1.25 and Albert Edwards' target of $1.10. As of 8:18 AM, the euro is at $1.3627.

As regular trading opened, gold fell. Seven dollars an ounce was lost in the first half hour, despite the U.S. Dollar Index still being in its trading range. $1,120 was breached. As of 8:56 AM ET, spot gold was at $1,118.20 for a gain of $1.10; the Kitco Gold Index had predominant buying adding only 55 cents. Evidently, last night's jump-up meant that gold was getting ahead of itself.